Latest Developments in the Canadian Economic Accounts

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The Revised Sectoring of Government Employee Pension Plans

With the release of the first quarter 2000 of the National Income and
Expenditure Accounts the sectoring of federal and provincial government,
non-autonomous pension plans has changed1.
These pension plans are now part of the personal sector. Previously these
plans were included in either the federal or provincial government sector
accounts. This revision affects the entire 1961 to 2000 period. Government
sponsored plans are now treated consistently with autonomous or trusteed
pension funds yielding a more complete picture of personal saving. Further,
the new pension accounting treatment is consistent with that of the Public
Accounts of Canada and the U.S. National Accounts. The change in accounting
has no effect on production but a significant effect on saving (and net
lending) in the sector accounts. In short, personal saving increases while
government saving2
declines by an equal amount.

Pension plans have three sources of income: employee contributions paid
out of salaries and wages, employer contributions (part of employee supplementary
labour income) and investment income (interest and dividends) earned on
the assets in the pension fund. The plans outlays, of course, include
pension payments to retirees. Previous accounting for government sponsored
plans credited all contributions to and investment income of the plans
to government income and saving. Pension payments to retirees were charged
against government outlays and credited to personal income. As the contributions
plus investment income of these plans have exceeded pension payments out
of the plans, the net effect was a positive contribution to government
saving.

Pension accounting in the Personal Sector

As indicated above, employer and employee contributions to pension funds
are counted as part of the wages, salaries, and supplementary labour income
of the personal sector in both previous and current treatments. The investment
income of the pension funds is now counted as the investment income of
persons rather than as government investment income. Current transfers
from government to persons in the form of public sector pension benefits
disappear from personal income and are now treated as a reduction in personal
wealth, which is outside the scope of these accounts3.
On the outlay side of the personal sector the employer and employee contributions
to pension funds are no longer transferred to government as part of contributions
to social insurance plans. The net effect is increased personal saving
resulting from higher personal income and reduced personal outlays.

In addition to the adjustments to saving, the revised treatment also
requires an additional entry (beginning in 1990) to account for the transfer
of the actuarially determined surplus from the pension plans to the federal
government. Such transactions are classified as capital transfers and
do not affect saving but do affect net lending.

Table 1 summarizes the impact of the change on the Personal Sector over
the period of revision.

Pension accounting in the Government Sector

The revision to the pension accounting in the government sector is of
course a mirror image of the personal sector. Government income is reduced
due to lower contributions to social insurance plans (a reduced personal
outlay) and by the investment income of pension funds that is now recorded
as income in the personal sector. Government outlays are reduced, as the
payment of pension benefits is no longer recorded. Tables 2,3,4 summarize
the revisions for Total, Federal and Provincial Governments.

Notes :

The National Balance Sheet Accounts, released
March 29, 2000, have been revised to reflect this change.

Though the change affects
both Federal and Provincial Government Sectors the major impact is on
the Federal Government Sector. For example in 1995 the change in accounting
increases personal saving by $10.4 billion balanced by declines in Federal
saving of $8.8 billion and Provincial saving of $1.6 billion.